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January 18, 2017

DoL Confirms Treatment of Using RMDs to Purchase Life Insurance

In the most recent Conflict of Interest FAQs issued from the DOL, the department has finally provided guidance on Advisers recommending the use of RMDs to fund permanent life insurance purchases. Please refer to page 3, question #4 of the FAQ which can be found HERE .


In the FAQ, the DOL makes clear that the advice given under this scenario would be considered as covered investment advice under the Rule, assuming the Adviser receives compensation for the insurance sale. In this scenario where the Adviser receives commissions for the insurance sale, she would need to leverage an available exemption under the Rule (presumably, PTE 84-24) in order to comply with the new requirements of the Fiduciary Rule for recommendations made on or after April 10, 2017.


While not specifically addressed in the FAQ, it is also logical to assume that recommendations to take voluntary distributions (as opposed to RMDs) from a plan or IRA to purchase permanent life insurance would also be considered as covered investment advice under the rule.


The Fiduciary Rule and the changes made to PTE 84-24 both become fully effective less than 90 days from today. Firms need to carefully consider their protocols for these types of recommendations to clients and be ready to fully comply with the Rule and the requirements of PTE 84-24 by April 10, 2017.


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